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Joint Ventures – How to Avoid Misunderstandings and Maximise The Upside

Richard Little, veteran developer, land and planning expert comments

Partnering, collaborating, and joint venturing are terms often used to describe working together on a project, so let’s start with an explanation as to what I mean by a joint venture within property development.

A joint venture (JV) occurs when two or more businesses join together to pursue a specific project. For example, BMW and Toyota are co-operating on research into hydrogen fuel cells, Google and NASA have a joint venture to develop Google Earth. In property development we often see the volume housebuilders collaborating on very large sites with each taking sections of land and sharing some infrastructure costs.

The businesses remain separate in legal terms and have a written agreement detailing the purpose, how the two (or more) parties share in profits and losses, how the parties make decisions and who is responsible for what. When individuals join forces to pursue a project it is a partnership and whilst the written agreement is similar in purpose, each partner is personally liable for the debt and obligations of the partnership.

Most JVs that we see in the property sector end in disagreement, disappointment and considerable emotional and financial cost. The biggest reasons for this are:

Lack of real development experience: Having relevant industry experience, like being a project manager, architect, contractor etc. can be extremely valuable. However, until someone has risked their own money/livelihood they don’t understand what being a property developer is really about. Trading through at least one economic cycle is essential to fully understand the markets.

Not enough due diligence on the project: Full development appraisal covering all project stages including acquisition, planning, all costs, funding, build and exits are required to fully understand the risk and reward balance.  

Not enough due diligence on the partners: Getting to know potential partners in business and social situations. Talking about finances, past and present, and personal things like relationships and health is really important as the consequences can be huge. Gut feeling is important.

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